New York (CNN Business)Two of North America’s largest railroad companies announced a merger Sunday that would connect freight customers to Canada, the United States and Mexico on a single network for the first time in history.
Canadian Pacific (CP) agreed to purchase Kansas City Southern (KSU) in a deal worth about $ 25 billion after discounting $ 3.8 billion of KCS debt that Canadian Pacific will take on. It would combine two of the industry’s fastest-growing rail companies at a time when online purchases have soared, overwhelming ports and delaying shipments.
The companies said in a statement that the deal would help them become more competitive. That could become increasingly important as the USMCA — the revised NAFTA trade deal between the United States, Canada and Mexico — takes hold. The combined company would operate 20,000 miles of rail, employing nearly 20,000 people and generating annual sales of about $ 8.7 billion.
“The new competition we will inject into the North American transportation market cannot happen soon enough, as the new USMCA Trade Agreement among these three countries makes the efficient integration of the continent’s supply chains more important than ever before,” said Canadian Pacific CEO Keith Creel, in a statement.
If the deal is consummated, the rail companies would join their networks in Kansas City, Missouri, giving customers access to Canada, the US Midwest, the US Northeast, the South Central United States and Mexico. The interchange point in Kansas City could remove a roadblock, speeding up shipments by allowing some cargo to remain on the same car. Currently, cargo being transported from one rival’s network to another may have to be swapped out to a new car to continue on its journey.
Despite the large purchase price, the combined company, which would be called Canadian Pacific Kansas City, wouldn’t climb the rankings of the largest of the top-tier railroads: It would remain No. 6 in the United States by revenue.
Still, the companies are predicting a potential antitrust fight. To win approval, they noted in their joint statement that the deal wouldn’t remove any independent railroad competition from the market, since the two combining companies serve different geographies.
The US Surface Transportation Board regulator would need to bless the deal first. The companies predict that could happen sometime in the middle of 2022.
